Fewer ASX companies see carbon price as a business risk

There has been a 12% drop in the number of listed Australian companies identifying carbon pricing as a business risk, indicating their increasing comfort with the pricing regime, according to the Carbon Disclosure Project’s Australia and New Zealand Climate Change Report 2012.

According to the 2012 report, 69% of ASX200 and NZX50 responding companies identified a risk to their business from carbon pricing down from the 81% 2011.

“The highlight was the drop in the number of companies who identify carbon of a risk,” Nathan Fabian, CEO of the Investor Group on Climate Change (IGCC) told The Sustainability Report during CarbonExpo in Melbourne this week. “That had been trending very high for a long time, many years, and many people felt an obligation to report carbon as a risk knowing it was coming one day without understanding how it would impact on them. It’s the drop that’s the interesting insight as companies are beginning to work through what it really means. I think that’s a really interesting highlight of the report this year.”

Australia’s Clean Energy Future legislation commenced from July of this year with a three-year fixed price on carbon of AU$23/tonne of carbon emissions, transitioning to a market-based pricing mechanism from 2015. Fabian attributed the 12% drop in identifying carbon as a risk to two factors.

“I think the reason is probably b/c they’ve either worked out there’s no price impact for them or b/c they feel like they’ve mitigated it,” he said. “How those two split, I don’t know, but I think those are the two reasons.”

The overall risk perception is higher in ASX100 responding companies, with 83% saying they are likely to be directly impacted, in contrast with 52% of NZX50 companies reporting direct impact. New Zealand’s emissions trading scheme has been in operation since 2008. The data for this year’s CDP report was collected before the July launch date.

At the time that CDP 2012 was gathering information, 15% of ASX200 said they were participating in at least one emissions trading scheme, with the EU ETS being the most commonly cited. However, 27% of the ASX100 and 24% of the ASX200 said that they expect to be participating in an ETS within the next two years, the report said.

The report also noted that the average carbon disclosure score for ASX200 companies increased from 62 in 2011 to 65 in 2012, but the NZX50 average disclosure score decreased from 42 in 2011 to 37 in 2012 for non dual-listed companies.

The 2012 report also highlighted identifies five ASX200 companies recognised on both the CDP 2012 ASX200 Carbon Disclosure Leadership Index (‘CDLI’) and the CDP 2012 ASX200 Carbon Performance Leadership Index (‘CPLI’) – Commonwealth Property Office Fund, CFS Retail Property Trust, Mirvac Group, National Australia Bank and Insurance Australia Group.  Qantas Airways and Commonwealth Property Office Fund were the equal highest scoring companies on the CDP 2012 ASX200 CDLI, the report noted.

The disclosure score for the CDLI has increased significantly since last year’s report – this year, the minimum disclosure score for inclusion in the ASX200CDL I was 86, up from 74 in 2011. The minimum score for inclusion in the NZX50 CDLI was 74. The report notes, however, that while climate change leaders in Australia continue to improve their disclosure quality, standards dare higher amongst leaders in the Global 500, US and UK companies.

Australia’s carbon disclosure leaders are unusual among global peers in that banks and property companies top the list – the report notes that the financial sector is under-represented in other CDP indices such as the CDP Global 500 CDLI. CDP attributes this Australian and NZ outperformance to being “possibly as a result of an increased focus on performance and disclosure associated with concern over reputation and customer expectations.”

The report highlighted airline and retail companies as making significant improvements in their disclosures, noting that Qantas Airways achieved the equal highest carbon disclosure score overall. Virgin Australia Holdings hit the ASX200 CDLI for the first time and Air New Zealand also “significant increased its disclosure socre this year,” the CDP said.

Meanwhile, BHP Billiton reported a 5 million tCO2e (-20%) Scope 2 GHG emission reduction, with the purchase of zero carbon emissions hydro-electricity to power the Mozal aluminium smelter contributing to this improvement.

Companies responding to the CDP survey are reporting that carbon pricing can be a driver of business opportunities – 35% said so. This is lower than 2011, where 56% said that carbon pricing is a driver of opportunities, but the CDP said this drop could be an indication that companies are adopting a “business as usual” approach as the Australian scheme is better understood. ASX100 companies were more likely to report opportunities – 46% of responding ASX100 companies identified opportunities, whilst only 14% of NZX50 said the same thing. The Energy sector had the largest percentage of companies identifying opportunities, at 70%.

”Respondents commonly identified an increase in economic attractiveness of gas compared to coal, thereby increasing the demand for gas resources for electricity generation,” the report noted.

Fabian said that companies were more likely to report on risks to business than on business opportunities, calling that dichotomy “legitimate”, given that few companies would be likely to disclose commercial opportunities.

“It’s important that companies are identifying [opportunities], doing their financial analysis, prioritising them, building them into the re-investment cycle, but I don’t think we can expect companies to talk about what they’re going to do before they do it,” he said. ”What we’re looking for in the CDP is that evidence of that analysis and preparation.”

The overall response rate for ASX200 and NZX50 companies is 48%. Half of the ASX200 participated and 42% of the NZX50 participated, the same as 2011.

 

See Also:

CDP: increased water risk awareness, lagging board response

CDP: water a substantial risk to ASX100 companies

Rachel Alembakis

Publisher/Editor at The Sustainability Report
Rachel Alembakis has published The Sustainability Report for more than three years. She has more than a decade of experience writing about institutional investments and pension funds for a variety of publications.